SK sees demand gains boosting refining margins

SK Innovation, South Korea's largest refiner, said it sees profit margins widening in the current quarter on seasonal gains in gasoline use and "robust" demand for middle distillates.

Asia-Pacific crack spreads on gasoline narrowed to an average of $1.60/bl in the January-March quarter from $2.80 in the preceding three months, but margins were trending upward late in the quarter, SK Innovation said. Diesel margins remained healthy at $14/bl, down from $15.80/bl in last year's fourth quarter. Fuel oil spreads were below zero, meaning prices were lower than input costs, for most of the latest quarter.

The Singapore GRM composite benchmark for Asia-Pacific narrowed to $3.20/bl from $4.30/bl. SK Innovation sees this spread widening as fuel demand grows.

Rival refiner S-Oil said yesterday that the industry also will be helped by plant turnaround projects in the April-June quarter, which will tighten supplies. Both companies expect gains in diesel demand to accelerate in this year's second half ahead of new International Maritime Organization (IMO) restrictions on shipping fuels.

While S-Oil has a bullish outlook on most petrochemicals, other than the glutted benzene (BZ) market, SK Innovation said it expects profit margins to be squeezed because of sluggish demand for polyethylene (PE) and oversupply of paraxylene (PX). Slowing economic growth in China will undermine demand, SK Innovation said, and additions to production capacity will add to PX supplies in the July-September quarter.

SK Innovation's first-quarter operating profit dropped by 54pc from a year earlier to 331.1bn won ($285.9mn) as profit margins narrowed sharply. The company's core refining business operated at a loss of W6.3bn, but the petrochemical segment had a profit of W320bn as increased naphtha prices boosted inventory values. Refining results showed progress from the preceding three months, when the segment had an operating loss of W554bn.